Should the UK stay in the European Union?
By Tejvan Pettinger on January 14, 2013 in economics
In the past few years, there have been a noticeable increase in the calls for the UK to consider leaving the European Union. A few years ago, we may have enjoyed complaining about EU directives on the bendy banana (which didn’t really exist) but it was taken as almost sacrosanct that membership of the EU was in the UK’s interest.
What has changed and would we really benefit from leaving – and negotiating a free trade agreement, which enables the benefits of EU membership without the supposed costs?
Should We stay in the EU?
The Ideal of European unity.
The relative peace and prosperity in Europe since 1945, is a huge achievement, given the past century of inter-European conflict. Britain is an intrinsic part of Europe, whether it likes it or not. We should take the opportunity to be a member of the European Union and help maintain this European integration and harmony. If the UK left the EU, we would be increasingly politically isolated.
However, do we need to be a member of the European Union to achieve this? The UK could still contribute to European ideals without signing up for all the political and economic integration that the EU elite wish to pursue. European countries, who have stayed out of the EU, such as Switzerland and Norway maintain friendly relations with Europe.
Free Trade
One of the strongest benefits of the European union is the fact that it is our main trading partner, and membership of the EU has helped reduce trade barriers – both tariff and non-tariff barriers. European trade is critical to the UK economy. Leaving the EU, could put this important aspect of our economy under threat.
The hope of Eurosceptics is that we could leave the political integration of the EU, but maintain all the free trade agreements. Again the model is that Switzerland and Norway have not been disadvantaged by staying out of the European Union. Evidence suggests, the EU would be keen to accommodate the UK as a free trade partner.
“If the British cannot support the trend towards more integration in Europe, we can nevertheless remain friends, but on a different basis. I could imagine a free trade agreement.”
Free Movement of labour and capital
Another benefit of the EU is enabling the free movement of people across borders. According to the European Commission, more than 15 million EU citizens have moved to other EU countries to work or to enjoy their retirement. British people have been able to work and retire in other countries. Migration from eastern Europe has helped fill in labour market vacancies, making the UK labour market more flexible. Migration has also helped reduce the dependency ratio, which improves the governments budgetary position.
Eurosceptics might argue that the free movement of labour from eastern Europe creates more problems. Given housing shortage, mass immigration could put strain on UK housing and aggravate issue of overcrowding
Ease of Studying Abroad.
1.5 million young people have completed part of their studies in another Member State with the help of the Erasmus programme. The possibility to study abroad is considered positive by 84% of EU citizens. (benefits of EU) Higher education is important industry and source of foreign earnings, which could be compromised by leaving the EU.
Again, there is the hope that the UK could maintain free movement of labour, but with more restrictions on the numbers of immigrants from Eastern Europe.
Economic Strength of the EU.
In the post war period, the EU economy performed very well, enabling a sustained increase in real GDP per capita and living standards. This used to be an argument in favour of UK membership.
This is perhaps the biggest weakness now facing the EU. The EU can no longer point to economic stability and strength. Structural problems with the Euro and monetary union, are creating a European Union of austerity, high unemployment and low economic growth. Eurosceptics argue that the political pursuit of the Euro and single currency has been at the cost of economic common sense.
For more details, we can examine the problems of the Eurozone. But, in summary
The Euro fails to account for the divergence in competitiveness, this has caused trade imbalances and lower domestic demand
Bond yields have been higher because of failure of European Central Bank to act as lender of last resort. Higher bond yields have created the necessity for unsuitable austerity policies.
The German dominated ECB prioritise low inflation and monetary stability over more practical goals like full employment and positive economic growth.
However, it is worth pointing out that the UK did not join the Euro, so is not sharing in the costs of a single currency. However, the economic performance of the UK hasn’t been much better than our Eurozone partners. Leaving the EU, wouldn’t change that much. We are not in the Euro anyway, and the ECB will not change their economic policy, just because the UK left the EU.
Cost of Membership.
The Treasury state that the net cost of the EU was £7.6 billion, in 2010-11 - up from £4.7 billion in 2009-10. This is relatively small percentage of UK government spending (e.g. social security accounts for £194bn) The UK does benefit from some EU spending, and the structural funds help to reduce regional inequality in the EU. Supporters of the EU argue that this £7bn isasily be funded by the increased trade and lower consumer prices resulting from EU membership
However, sceptics argue the actual cost is closer to £10 billion. Furthermore, much of EU spending is highly inefficient and wasteful. Despite reforms, the biggest target of EU spending is still agriculture, which benefits economies with big agricultural sector. The UK gains little from the common agricultural policy; some of the main recipients are large wealthy landowners who perversely benefit from the subsidies they are entitled to.
Democracy in a global economy
Many issues like fishing, agriculture, global warming, competition policies are issues that need European agreement. In today’s highly global economy, you can’t tackle these issues independently. If fishing policy. is inadequate, the UK needs to work within the structure of the EU to improve it. Leaving will mean the UK have no say, and will be even worse off. We don’t have any choice, but to work for European wide agreement on these issues of a global nature.
However, critics argue that the EU has become so large and cumbersome, that it is too difficult to have a meaningful say on important issues. Increasingly issues will have to be decided by Qualified Majority Voting, which means that the UK may have to accept rules and regulations we didn’t support.
Personal View
My personal view is instinctively to support attempts at European union and integration. Even if there are some costs, like inefficient agricultural policies, the hope is that the net benefits outweigh this. In particular, I don’t feel that the UK can go it alone – which some Eurosceptics seem to give opinion. The nature of globalisation is that we are increasingly integrated and interdependent on our European neighbours (whether we like or not).
However, I can also see the attraction of the viewpoint which says – why not have the benefits of European membership (free trade, acceptance of qualifications, free movement of capital) without all the unnecessary political integration and economic policies which are damaging the EU. You can often find yourself agreeing with people, even if you don’t share their motives.
In particular, the attitude of the EU towards the Single currency and unemployment is a real cause for concern. In my view, the Single currency is structurally unsound, and rather than bringing European nations together, is causing a rise in extremist political activity, because of the high social costs surrounding the consequences of austerity and high unemployment.
The management of the EU crisis makes you wonder at the direction of the European Union and whether they are losing sight of the best way to promote European integration.
One final note is that leaving the EU, would change things much less than either side might admit. Trade may be relatively unaffected. There is no reason why leaving the EU, should have to significantly change the way we do business. But, also leaving the EU, wouldn’t change the problems arising from the Single Currency experiment. Also the money saved from leaving the EU would be relatively insignificant. It wouldn’t make much of a dent in the UK budget deficit.
